MLB Continues to Boom; Yankees Rank as Most Valuable Franchise, Payroll Cuts Make Up for Stagnant Revenue

Forbes has released its annual study of MLB’s financial landscape, and the results indicate the sport is enjoying many more fiscal peaks than valleys. According to the data, MLB added approximately 7% to net revenue and almost 10% in operating profit, while the league’s 30 franchises topped a combined valuation of $38 billion, or more than double just four years ago. Cable TV and the internet continue to be drivers of the league’s financial strength, but branding expansion has also played a role. Between increasing rights fees, the success of MLBAM, and brand leverage, the prospects for future growth are as bright as ever, assuming, of course, the players and owners are smart enough to peacefully negotiate a new CBA after the 2016 season.

MLB Financial Snapshot, 2003-2015Note: Revenue for each team is net of stadium debt and revenue sharing.
Source: Forbes.com

Every team has participated in MLB’s decade-long expansion, but in 2015, the biggest benefactor was the Houston Astros, which led all franchises in terms of valuation, revenue and EBITDA growth. The Mets also posted impressive growth in all three categories, thanks in large part to their World Series run, which could translate to an even bigger financial bonanza in the year to come. Although the Dodgers once again ranked second in terms of franchise valuation and revenue, the team’s status as the game’s biggest spender took its toll on profit. Los Angeles’ EBITDA plummeted to a $73 million operating loss, which easily ranked as the lowest in the game, placing the Dodgers at the opposite end of the rival Giants’ profit of nearly the same.

Top-5 and Bottom-5 Teams By Valuation, Net Revenue, EBITDANote: Revenue for each team is net of stadium debt and revenue sharing.Source: Forbes.com

The Yankees once again ranked as baseball’s most valuable franchise and solidified its position as one of the richest brands in all of sports. At $3.4 billion, Forbes’ estimate puts the Bronx Bombers behind only the Dallas Cowboys, but on par with Real Madrid. However, the team’s revenue growth stagnated in 2015. Then again, with TV ratings, attendance, and performance on the field in decline, perhaps the Yankees did well to boost in-take by a near MLB-low 2%? Regardless, despite the slow down in revenue, the Bronx Bombers still managed to pad the bottom line. With EBITDA increasing to $13 million, Hal Steinbrenner’s effort to reign-in costs is clearly bearing fruit.

Yankees’ Financial Snapshot, 2003-2015Note: Revenue for each team is net of stadium debt and revenue sharing.
Source: Forbes.com

MLB owners have done well during the sport’s boom period, but what about the players? Based on salary figures reported by MLB and Forbes’ revenue estimates, the players’ share of the pie has dipped to around 46%. However, that rate excludes benefits and postseason awards. When adding these components back to the mix (approximately $460 million in 2015), the players’ share of net revenue is closer to the just over 50% that the MLBPA has repeatedly claimed.

Players’ Share of Net RevenueNote: Revenue is net of revenue sharing and stadium debt service. Payroll excludes benefits and is based on final figures for each year released by MLB, and may not necessarily equal the amount upon which the luxury tax is based.Source: MLB releases published by AP (final payroll) and Forbes (revenue)

The Dodgers not only have the highest payroll, but they are also spending the largest percentage of revenue on player costs (actual payroll plus luxury tax penalty). Over 75% of the Dodgers’ in-take was allocated to players, a rate that easily topped the Tigers at just over 60%. In the middle was nearly half the league, as 14 teams were within a rounded 5% of an even split. Among outliers, the thrifty outnumbered big spenders by a 2 to 1 margin. Included among the former were the Mets and Astros, but, with each experiencing significant revenue growth, there will undoubtedly be more pressure on both teams to increase spending.

2015 Player Cost (Payroll/Luxury Tax) as a Percentage of Team Revenue for all 30 Teams

Note: Revenue is net of revenue sharing and stadium debt service. Payroll excludes benefits and is based on final figures for each year released by MLB, and may not necessarily equal the amount upon which the luxury tax is based.Source: MLB releases published by AP (final payroll), MLB releases published by AP (luxury tax) and Forbes (revenue)

The Yankees have significantly reduced player costs as a percentage of revenue, but the team’s belt tightening has escaped scrutiny. Hal Steinbrenner’s quest to avoid the luxury tax has driven the team’s player costs to below 50% of revenue for the second consecutive season, and, even with slowing revenue growth, that trend seems likely to continue. Not only did the Yankees 48.5% rate of player expenditures rank just ahead of the MLB average, but it also represented the team’s lowest level of spending since at least 2001. Although some have speculated that the Bronx Bombers are saving up for Bryce Harper, the repeated intention of ownership is to dip below the luxury tax threshold, which, if accomplished, would place the Yankees’ relative investment in players on par with teams like the Marlins and Rays.

Yankees’ Payroll/Luxury Tax as a Percentage of Team Revenue, 2001 to 2015Note: Revenue is net of revenue sharing and stadium debt service. Payroll is based on final figures for each year released by MLB, and may not necessarily equal the amount upon which the luxury tax is based.Source: bizofbaseball.com and MLB releases published by AP (final payroll), MLB releases published by AP (luxury tax) and Forbes (revenue)

Footnotes

Forbes’ revenue figures differ from totals reported by MLB because they include ancillary stadium revenue (such as concerts and other sporting events), but exclude applicable stadium debt payments.

Forbes uses EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) as a measurement of operating income. Although usually defined as EBIT, Forbes not only adds back interest and taxes, but depreciation and amortization expenses as well. As a result, Forbes operating profit can appear higher than stated figures

3 Responses

[…] Even if the Yankees didn’t end up advancing in the postseason, and earned no additional revenue from potentially having a better team, the added expense would have still been reasonable. As depicted in the chart above, the Bronx Bombers’ relative payroll would have remained around 50%, which is still lower than the seasons that preceded them and in line with the MLB average. […]

[…] Yankees’ commitment to fielding a championship team has rightly been called into question by its systematic reduction in payroll. That lack of investment has placed the team at a crossroads. Should the Yankees continue to […]

[…] a prolonged period of mediocrity. That’s the argument the organization has used to explain its relative underinvestment in the team, and which many fans and most in the media have adopted as infallible, conventional wisdom. […]